Coronavirus complicates Argentina's delicate dance to avoid debt default

BUENOS AIRES/LONDON, March 31 (Reuters) - The global coronavirus pandemic is threatening to disrupt Argentina’s tense debt restructuring talks with creditors, stoking risks the country may slip into default and face a downgrade, ratings agencies and bondholders told Reuters.

The South American country’s leaders have said they cannot keep serving its debts without revamping almost $70 billion in overseas bonds and nearly $45 billion owed to the International Monetary Fund (IMF) to push back repayments.

However, a time frame for making a proposal to creditors in mid-March and striking an agreement by the end of the month, has been scuppered in large part by the deadly coronavirus pandemic that has killed over 36,000 and seen international borders shut.

That could have a ripple effect as payments come due. Argentina faces around $22 billion in foreign currency payments this year on bonds, bills and loans including to the IMF.

“I think there is a higher risk now that Argentina could take the decision to stop paying on its external debt,” said Todd Martinez, Fitch Ratings director for Latin American sovereigns, focused on the Southern Cone.

“Because, for all sorts of reasons, the negotiations are going to take quite a bit longer than they originally envisioned, in large part due to the coronavirus crisis.”

Fitch, which has Argentina’s sovereign debt rating at “CC”, would cut that to “RD” (restricted default) if a payment was missed or to “C” during any payment grace period.


That could become more likely as talks to broker a deal are stalled by the pandemic, which has led Argentina to close its borders and impose a mandatory quarantine until mid-April.

“It will take some tough negotiations to reach a deal that covers a sufficient investor universe and that is particularly tricky given the coronavirus outbreak,” said one Argentine bondholder who canceled a trip to the country due to the virus.

“Finalizing an agreement with bondholders before the end of this month (March) is never going to happen. It will be very difficult to get an agreement for 75% of bondholders. A timetable of six months from now is more realistic.”

Some of Argentina’s bond have collective action clauses, which require amendments made to a single series of bonds to be approved by holders of 75% of the capital.

The economy ministry declined to comment. A person briefed on the government’s plans said while the timetable had been hit by the virus, the delay should not be too significant and a six-month hold-up was “not remotely realistic”.

“We are in the middle of a global crisis as we can all see,” the person said, adding that a formal proposal in April was “feasible”. “I think in the very near term there could be both an offer and an agreement,” he said.

Argentina is expected to lay out guideposts for the restructuring this week, but not a formal offer, Reuters reported on Monday.


Bondholders and credit ratings agencies said that the initial time frame has been a stretch from the start.

“The end-March deadline was always unrealistic. It’s too ambitious given the complexity of the restructuring,” said Nick Eisinger, principal for fixed-income emerging markets at Vanguard. He said a new “soft deadline” was now seen as May 7.

Another bondholder in one of the main creditor committees said some sort of agreement by the end of April might be possible, though people needed a couple of weeks to adapt to the new situation with the spread of the virus.

Argentine President Alberto Fernandez and Economy Minister Martin Guzman have maintained that the country cannot pay its debt obligations until given time to revive the economy, which has been mired in recession since 2018.

Fernandez told local station Radio con Vos on Monday that “it was never good to be in default”, but that the country faced a tough reality. “We need time; today we cannot pay,” he said.

Guzman told Reuters earlier in March that every side involved in the negotiations would need to be flexible due to the pandemic and that the deadline could be missed, though he said then that it should be by “a matter of days.”

Lisa Schineller, analytical lead for sovereign ratings at S&P Global Ratings, said the agency was working on the basis that Argentina would keep up with payments but that stalled talks added a degree of risk.

S&P, which recently downgrade Mexico’s rating due to the coronavirus impact, has a CCC- rating for Argentina with a negative outlook.

“The longer it takes, the risk of a non-payment presents itself,” Schineller said. “If there were signs becoming evident of a likely non-payment, we could act.”

Reporting by Cassandra Garrison; additional and Adam Jourdan in Buenos and Tom Arnold in London; Additional reporting by Eliana Raszewski and Rodrigo Campos; Editing by Lisa Shumaker